Investigating the link between Property and Social Impact

Civitas Social Housing PLC (Civitas) is the first Real Estate Investment Trust (REIT) dedicated to investing in social housing in England and Wales.

It specialises in investing in social housing for people with care and support needs and has an investment strategy with a social purpose: to support vulnerable members of society.

Civitas’ group company accounts (up to 31 March 2018) state: “The key aim of Civitas Social Housing plc from a social impact perspective is to improve the quality of specialist social housing properties and increase the quality of specialist social housing whilst demonstrating value for money for the public purse. Civitas is seeking to develop a high quality portfolio…that offers exposure to stable well diversified returns while delivering real social benefit and impact.”

Which areas does Civitas target?

Supported living for individuals with learning difficulties and acquired brain injury

Mental health care facilities

Accommodation to enable individuals to transition from NHS support to more independent living

Accommodation for people with addictions

Accommodation for people who are homelessness or at risk of being homeless

The Model

Civitas seeks to raise private capital to invest in social housing. Specifically, it looks to raise funds from large-scale institutional investors. A large part of its portfolio is from buying existing properties from housing associations and other social housing providers and continuing their use for social housing. For example, it recently acquired 19 social housing properties for £73.5 million and agreed to purchase a further two properties for £12.1 million, to provide housing for over 300 tenants.

The model adopted by Civitas is to buy stock from housing associations, then manage the housing usually through a third party on long-term (typically 25 year) leases. The company is building up a network of connections in the social housing market (including with housing associations, care providers and local authorities) which enables it to acquire a number of properties off-market for competitive prices. This approach resulted in capital appreciation of £30.6 million in the first reporting period for 2018.

In addition to existing off-market property acquisition, the company also acquires new builds and existing residential properties. Where new properties are being developed or converted by third party developers, the company acquires once the build has been completed. This manages risk as the developer shoulders the primary risk of finishing the build (together with the associated forward funding risks with development schemes). In addition, the company has an income generating property from day one of its ownership. This model of managing (and where possible minimising) risk is often seen in the commercial sector and has been adopted by Civitas in the social impact sphere.

Once it has acquired property, the company usually enters into a long-lease (usually 25 years) in order to provide security to housing providers and tenants. The rents are typically linked to inflation, with annual CPI uplifts.

How does Civitas manage its costs?

Company accounts state that “typically, government funding for each tenant under this categorisation [the most vulnerable in society] represents 100% of the cost. This includes housing (rent and property maintenance) as well as the cost for care (paid to the Care Provider and usually representing the largest element of overall funding). Costs are paid from the Department for Communities and Local Government and the Department of Work and Pensions to the relevant Local Authority, which then passes funds onto the Registered Provider and Care Provider.”

In addition to its core property business, Civitas also supports charities and projects that aim to address other social issues, such as homelessness. For example, they have provided grant funding to Crisis and The Choir with No Name which specialise in homelessness.

The Statistics

The Civitas Half Year Impact Report (prepared by The Good Economy in November 2018) (the “GE Report”) reports that:

As at 30 September 2018, Civitas’s property portfolio was valued at £678.7 million

Civitas work with a range of local authorities and care providers. In 2018, they worked with a network of 93 care providers, the Regulator of Social Housing and 140 local authorities

The financials behind the Model

Civitas obtains funding from a variety of sources; primarily from institutional investors and private funding. The GE Report states that “in November 2016, Civitas was admitted to the London Stock Exchange in a £350 million offering, making it the first social housing REIT. In 2017, Civitas raised a further £302 million in a C-share offering, which combined £110 million debt and resulted in £762 million available for investment as of 30 September 2018.”

Civitas’s accounts show that they have also obtained funding from revolving credit facilities. Specifically, Civitas’s group company accounts (up to 31 March 2018) refer to the company fully using £92.5 million of debt (obtained from commercial banks) to enable it to acquire properties to fulfil its social objectives.

The future?

Civitas was the first REIT specialising in social housing to be listed on the London Stock Exchange. It has demonstrated that companies that seek funding from institutional investors and commercial banks can use their funds (and expertise in their specialist area) towards achieving a social impact objective. Could Civitas be at the forefront of a trend for companies with commercial expertise getting involved in social impact investing with a focus on meeting the bottom-up needs of society?

As highlighted in our introductory article on this Blog, there are good reasons to be optimistic about the social impact issues that can be addressed by the social and commercial sectors working together. Indeed, there are further recent examples of collaboration between the commercial sector and the social economy. For example, The Good Economy reported in January 2019 that they have been commissioned by CBRE Global Investors to develop a social impact assessment framework that can be integrated into CBRE’s investment process.

We will continue to watch this space for further examples of collaboration between these sectors and Stone King will report to you from the front line on developments in this area.